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Target

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  1. Target SSG Presentation to the Cincinnati Model Investment Club by James Hurt

  2. Standard SSG Presentation • A discussion of the industry. • A discussion of Target. • Who they are. • What they do. • Who their competitors are. • A discussion of my SSG for Target. • A discussion of SSG’s for competitors. • A conclusion of sorts.

  3. Retail Store Industry • Comparable-store sales and profits at most leading department store chains have been hurt by weak consumer demand for high-end apparel and home furnishings. • Major discount chains have seen their same-store sales rebound to levels near the peaks achieved in the late Nineties.

  4. Retail Store Industry • The current economic scenario is working to the advantage of discounters, and we look for solid top- and bottom-line momentum at the two leading players, Wal-Martand Target. • Wal-Martand Target’snear-term earnings prospects have been enhanced by Kmart’s bankruptcy filing.

  5. Target • Formerly known as Dayton-Hudson. • HQ in Minneapolis. • Three operating segments: • 1107 Target Stores, mainly in the upper Midwest. 82% or revenues. • 264 Mervyn’s stores. • 64 Marshall Field’s stores.

  6. Target • Stores in every state save Alaska, Hawaii, and Vermont. • Highest density in Minnesota, upper Midwest, and Arizona. • Plan 81 new super stores this year and 75 more next year. • Last years revenues were $40 Billion.

  7. Wal-Mart • Mass merchandising stores • Segments • Wal-Mart discount stores. • Super Centers • SAM’s Clubs • Neighborhood Markets • 3244 stores, in every state. • Starting to build stores overseas. • Last year’s revenues were $218 Billion.

  8. Kohl’s • Family oriented specialty department stores. • Fewer departments than full-line department stores. • Moderately priced apparel, shoes, home products. • Middle income shoppers • 420 stores, mainly in the Midwest. • Last year’s revenues were $7.5 Billion.

  9. SSG For Target • No preferred stock. • 900 Million shares outstanding. • Insiders own 1.3% (12 Million shares). • Institutions own 83%. • $10 Billion in debt, 57% of capitalization. • Trailing Twelve Months Growth • Sales 15.1% EPS 35.7%

  10. SSG For Target • 10 year sales line is straight at 9.5% growth. • EPS ten year growth 20.0%. • Pre-Tax Profit margin even at 5.3%. • 5.1% for Wal-Mart and 9.2% for Kohl’s. • Return on Equity roughly even at 18.5%. • 20.1% for Wal-Mart and 16.0% for Kohl’s.

  11. Projections For Target • Projected sales growth to continue at 9.5%. • Projected EPS growth to match sales growth. • Projected EPS to be $2.46 in 2006. • Projected High PE of 28.0 and Low PE of 16.0.

  12. Five Year Price Rangefor Target • Projected High Price $68.90 • Projected Low Price $25.00 • Current Price is $33.66, in Buy range • Upside-Downside ratio is 4.1 to 1 • 104.7% price appreciation. • Total Five Year Return is 18.4% per year.

  13. SSG For Wal-Mart • No preferred stock. • 4,500 Million shares outstanding. • Insiders own 38.9% (1.7 Billion shares). • Institutions own 35.4%. • Insiders + Institutions own 74.3%. • $22 Billion in debt, 34% of capitalization. • Trailing Twelve Months Growth • Sales 14.4% EPS 19.4%

  14. SSG For Wal-Mart • 10 year sales line is straight at 15.9% growth. • EPS ten year growth 15.5%. • Pre-Tax Profit margin even at 5.1%. • 5.3% for Target and 9.2% for Kohl’s. • Return on Equity roughly even at 20.1%. • 18.5% for Target and 16.0% for Kohl’s.

  15. Projections For Wal-Mart • Projected sales growth to continue at 14.0%. • Projected EPS growth to match sales growth. • Projected EPS to be $2.87 in 2006. • Projected High PE of 30.0 and Low PE of 15.0.

  16. Five Year Price Rangefor Wal-Mart • Projected High Price $86.10 • Projected Low Price $22.40 • Current Price is $54.11, in Hold range • Upside-Downside ratio is 1.0 to 1 • 59.1% price appreciation. • Total Five Year Return is 11.8% per year.

  17. SSG For Kohl’s • No preferred stock. • 1,100 Million shares outstanding. • Insiders own 13.3% (146 Million shares). • Institutions own 83.3%. • Insiders + Institutions own 96.6%. • $1.1 Billion in debt, 27% of capitalization. • Trailing Twelve Months Growth • Sales 25.7% EPS 40.9%

  18. SSG For Kohl’s • 10 year sales line is straight at 24.2% growth. • EPS ten year growth 31.0%. • Pre-Tax Profit margin even at 9.2%. • 5.3% for Target and 5.1% for Wal-Mart. • Return on Equity roughly even at 16.0%. • 18.5% for Target and 20.1% for Wal-Mart.

  19. Projections For Kohl’s • Projected sales growth to continue at 15.0%. • Projected EPS growth to match sales growth. • Projected EPS to be $2.92 in 2006. • Projected High PE of 30.0 and Low PE of 20.0.

  20. Five Year Price Rangefor Kohl’s • Projected High Price $87.60 • Projected Low Price $29.00 • Current Price is $69.77, in Hold range • Upside-Downside ratio is 0.4 to 1 • 25.6% price appreciation. • Total Five Year Return is 5.3% per year.

  21. Conclusions • All three companies are very good companies, with Kohl’s having perhaps the best overall management. • Current prices for Kohl’s (PE = 45.6) and Wal-Mart (PE = 34.9) are to high. • Target has lowest growth potential, and the lowest PE (PE = 20.3). Target’s price is in the buy zone. • Target may have a problem with debt.